9 Must-Know Things about Using CPF to Buy a House

6 min read

Most Singaporeans know that they can use CPF to pay for their home loan, and…that’s it. But there’s much more to it than that:

1. Whether you use a bank or HDB loan affects how much CPF you can use

When you take an HDB Concessionary Loan, you can borrow up to 90 per cent of the price or value of your flat (whichever is lower). The remaining 10 per cent can be paid through CPF.

9 Must-Know Things about Using CPF to Buy a House
You can borrow up to 90 per cent of the price or value of your flat (whichever is lower) with a HDB loan.

When you take a bank loan, you can only borrow up to 75 per cent of the price or value of your house (whichever is lower). Another 20 per cent can be paid through your CPF, while five per cent must be paid in cash.

2. You can now reserve up to $20,000 in your CPF OA, when buying a house

When you use your CPF to buy a flat, you no longer have to use everything in your Ordinary Account (OA). You can now set aside $20,000.

Why would you do this? Well, it provides a “safety buffer” in case things go wrong. You can use this money to pay your home loan if you get retrenched, fall sick and can’t work, etc.

9 Must-Know Things about Using CPF to Buy a House
You can now set aside $20,000 in your CPF OA.

However, there may be good reason not to set aside the full $20,000; just a sufficient sum to cover your loan repayments for six months should do. We explain why in this article.

3. There is a limit to how much CPF you can use for your housing

This cap is called the CPF Withdrawal Limit. It is based on the Valuation Limit (VL) of the house you buy.

(The VL is the lower of the property price or valuation – if your flat cost $350,000, but the valuation is $340,000, then the VL is is $340,000).

The CPF Withdrawal Limit is capped at 120 per cent of the VL. Any amount beyond this has to be paid in cash.

4. You can pay your home loan with your CPF regardless of whether you buy public or private property

You can use CPF to pay the home loan for public and private housing. However, the usual restrictions – such as the withdrawal limit in point 3 – still apply.

5. You can pay for stamp duties and legal fees with your CPF

When you purchase a house, you will have to pay the Buyers Stamp Duty (BSD). If you are buying your second or subsequent property, you will also be subject to the Additional Buyers Stamp Duty (ABSD). You can pay these stamp duties with your CPF, subject to some restrictions:

First, you can only use the money in your CPF Ordinary Account (CPF OA).

Next, if you’re buying a completed house (i.e. the house is not under construction), you must pay the stamp duties in cash first. You can then reclaim the amounts from your CPF later (contact the CPF Board for more details). Those stamp duties are due within 14 days of completing your property purchase, in case you’re wondering.

Besides paying for the stamp duties, your CPF can cover legal costs such as conveyancing fees.

Lastly, if you are buying your second or subsequent property, you must first set aside your Basic Retirement Sum before you can use any more CPF money (check the CPF website for details on your Basic Retirement Sum amount, based on your age).

For example, if your Basic Retirement Sum is $181,000, and you have $220,000 in your CPF OA, you can only use another $39,000 from your CPF.

Besides paying for the stamp duties, your CPF can cover legal costs such as conveyancing fees.

6. If you pay your home loan in cash instead of with CPF, you can ramp up your retirement pay-outs

You don’t have to use your CPF OA to pay for your home loan. If you’re very disciplined, you can pay for your home loan in cash, while transferring your OA monies into your CPF Special Account (CPF SA).

This will increase your retirement pay-outs, as your SA grows at four per cent per annum, whereas your OA only grows at 2.5 per cent.

9 Must-Know Things about Using CPF to Buy a House
Pay for your home loan in cash and transfer your OA monies into your CPF Special Account; your retirement pay-outs can increase.

Consult a qualified financial planner before deciding to take this step.

7. You have to return the CPF monies you used when you sell your house

When you sell your house, you need to return any CPF monies you used, plus the accrued interest (currently 2.5 per cent per annum). Note that you only ever return the amount you used, regardless of whether you sold your house for a profit or loss. You can still use the CPF money for your next home.

If you want to keep the sales proceeds in cash, one way to pay the home loan in cash instead of using your CPF (see point 6).

8. Your HDB loan interest rate is based on the CPF interest rate

The interest rate on an HDB loan is always 0.1 per cent above the prevailing CPF interest rate. As the current rate is 2.5 per cent, HDB loans have an interest rate of 2.6 per cent.

9 Must-Know Things about Using CPF to Buy a House
Your HDB loan rate is 0.1% above the prevailing CPF rate.

This does mean that, if you get a higher interest rate from CPF, your HDB loan might become more expensive too (but the rates have remain unchanged for a long time).

9. CPF pays for your Home Protection Scheme

The Home Protection Scheme (HPS) pays off your remaining mortgage, in the event of death, terminal illness, or permanent disability. If you pay for your HDB flat with CPF, you must be insured this scheme.

But you’re not covered by HPS if you own an Executive Condominium (EC) or private property. Private property owners can purchase a similar insurance called a Mortgage Reducing Term Assurance. It’s entirely up to them whether they want it…but they really should.

Buying your first home or investment property? We’re here to help. Find out how to make your property purchase safe as, well, houses. Our panel of experts are ready to answer your questions, and provide clarity on any property issues.

Consult them at Property Investing for Non-Millionaires, on 25th May 2019, at the HDB Hub Auditorium (Toa Payoh). Tickets are just $20, and early birds get a 50 per cent discount.

Looking for a property?

Find the home of your dreams today on Singapore’s fastest-growing property portal 99.co! If you would like to estimate the potential value of your property, check out 99.co’s Property Value Tool for free. Also, don’t forget to join our Facebook community page or Telegram chat group! Meanwhile, if you have an interesting property-related story to share with us, drop us a message here — and we’ll review it and get back to you.

Reader Interactions

Leave a comment

Your email address will not be published. Required fields are marked *

Get the latest news in your inbox

  • This field is for validation purposes and should be left unchanged.